Last Updated: December 9th, 2023

Estate Planning Guide For Beginners [Complete Guide]

Estate Planning Guide For Beginners [Complete Guide]

Many think an estate plan is only for the rich, but this isn’t true. Your estate is a collection of everything you own, including personal belongings, property, and money. No matter how much debt you have, those things will need to go somewhere after you are gone. This is where estate planning is helpful. The process will allow you to decide what happens to your estate.

A plan is needed if you have dependents who need to be cared for or anything of value. An estate plan also includes the care you want if you become incapacitated and who handles your affairs if you cannot do so. This is important for everyone, no matter how many assets you have.

What Is an Estate Plan?

An estate plan is several legal documents that show your expectations and intentions for what happens if you cannot take care of your estate or what happens to your assets after you pass.

4 Steps of Estate Planning

There are four different steps of estate planning.

List Everything You Own

The best way to begin estate planning is with an inventory of all your assets. Identifying these assets upfront can help save you time, especially when working on a plan with your spouse or an estate planning attorney.

You should include bank accounts with approximate values, investments, retirement plans, property and real estate, businesses, personal property of value, insurance policies, digital assets, and debts you owe.

Create the Plan

Once you have a record of things, you can start the plan. Think about who you want to pass things on to. These people are considered your beneficiaries. Also, think about who you want to give stuff to or if something happens to your primary choices.

How you create the plan will depend on your situation. While you can do this on your own with the help of apps, working with an attorney and professional can help you if you aren’t sure what to do.

Even though working with an attorney will cost you more, an attorney can help save your beneficiaries from the cost of a probate trial if someone contests the will.

Execute the Plan

This step will vary for each individual. For some people, there won’t be much to do except sign some documents and notify people of your plan. There may be more to do once your plan is official, such as starting to regularly gift assets and money to beneficiaries or change the names on some titles.

Keep the Plan Updated

You may be unable to create this plan and forget about it. You will need to update it and continue to follow it. This is especially important if you create the plan when you are young or if you have a major life change, such as the birth of a child. Even if you don’t have any major changes, it’s important to stick to the plan.

Working with an Estate Planning Attorney

An estate planning lawyer is a professional with experience and knowledge about estate planning. He or she can help you determine what you need a plan for and who should be a part of this plan. The attorney helps you write legally binding documents that cannot be contested after your death.

Even with online guides available, estate laws vary in different states, so working with a local lawyer can help you know the rules in your area. If you have a complicated or large estate, you want professional help.

Essential Estate Planning Documents You Need

There are some documents that every estate plan needs. These include the last will, letter of instruction, power of attorney, living will, and life insurance policy.

Everyone should have a will since it states who gets their assets. In your will, you can make specific requests for certain heirs. Anything left over becomes part of the estate and then distributed to the beneficiary you name. A trust gives you a place to put assets, so your heirs can access them.

A living trust allows you to avoid probate for the assets to save you time and money if you know certain assets are going to certain beneficiaries. Assets you put into a trust aren’t part of the estate, so the taxable estate is smaller.

The letter of instruction is just a summary of your will. This document isn’t necessary, but it can allow you just to explain your wishes and hopes for your heirs. This can be helpful if you forgot to include something in your will or it wasn’t very clear.

An advanced medical directive is necessary if you aren’t able to take care of yourself. For example, it covers what you want your beneficiary and loved ones to do if you are on life support.

A durable power of attorney allows you to have someone make legal, financial, or medical decisions on your behalf. They can make mortgage payments, manage bank accounts, and change the details of some trusts. Without this document, the court has to appoint someone. While a court-appointed person is legally required to act in your best interest, you may want to name someone yourself for peace of mind.

Life insurance is not necessary for an estate plan, but you may want to consider it. Life insurance allows you to financially protect your loved ones, especially if you help pay monthly bills or have a share of debts, such as a mortgage. While some get a small amount of life insurance through an employer, this is not normally enough.

Everyone Can Benefit from an Estate Plan

There are a number of myths that prevent people from having an estate plan. For example, even if you are married and think your spouse will get everything, you should have a plan.

A plan can prevent people from contesting ownership and dragging it out for months. There can be unique situations, such as what happens if your spouse dies shortly after you. Things can get messy without a plan so everyone can benefit. If you are young, you should still create a plan; sometimes, it can be cheaper to create a plan when you are young.

For example, life insurance policies are cheaper when you are healthy and younger. Even if you think your family knows what to do without a legal document, it’s hard to have that guarantee. Even small things you may not consider can lead to family arguments.